SCOTUS Provides Clarity to Charterers in Oil Spill Case and All Parties Subject to OPA Should Take Note

On March 30, 2020, the U.S. Supreme Court issued a decision that will directly affect those in the maritime charter industry, and may ripple out to anyone performing a cleanup or defending a claim under the Oil Pollution Act (OPA). The case began with a 1,900-mile voyage by the M/T Athos I, which was a 748-foot single-hulled oil tanker, from Venezuela to Paulsboro, New Jersey in November 2004. Only 900 feet from the ship’s intended destination, it struck a nine ton anchor that was abandoned in the Delaware River. The anchor pierced the hull of the vessel and caused over 250,000 gallons of crude oil to spill into the river, which resulted in a $133 million cleanup. Frescati Shipping Company, the owner of the ship, together with the United States, paid for the cleanup as required under OPA, and then sought its cleanup costs from the charterer, CITGO Asphalt Refining Company (“CARCO”).

The question before the High Court was “whether the safe-berth clause is a warranty of safety, imposing liability for an unsafe berth regardless of CARCO’s diligence in selecting the berth.” Frescati and the U.S. argued that CARCO breached the charter-contract’s “safe-berth” clause, which obligated CARCO to designate a safe-berth where the ship would be able to come and go “always safely afloat.” CARCO, on the other hand, argued that the “safe-berth” clause only required due diligence of the charterer in designating a berth. In an opinion authored by Justice Sotomayor, the Court held that the safe-berth clause in the contract at issue was a warranty, thereby resolving circuit split on this issue. Justice Thomas, joined by Justice Alito, dissented.

In admiralty industry parlance, charter and sub-charter agreements like the one that formed the contract at issue here are called “charter parties.” Charter parties are often based on standard industry forms that the contracting parties are able to modify as needed. The template the parties used here is published by the Association of Ship Brokers & Agents (USA) Inc. (“ASBA”), and is commonly known as the ASBATANKVOY form. The ASBATANKVOY includes a safe-berth clause that is common to many charter parties: “[t]he vessel shall load and discharge at any safe place or wharf, … which shall be designated and procured by the Charterer, provided the Vessel can proceed thereto, lie at, and depart therefrom always safely afloat, any lighterage being at the expense, risk and peril of the Charterer.” Under this obligation, CARCO designated its Paulsboro, New Jersey asphalt refinery as the place of discharge, and this is where the fateful allision occurred.

Applying basic contract law, the Court held that “the unqualified language of the safe-berth clause” unambiguously and plainly “binds the charterer to a warranty of safety.” The Court states that, despite the lack of the word “warrant,” CARCO’s interpretation that would apply a standard of due diligence would impose concepts of tort law that “have no place in the contract analysis required here.” Unless the parties bargain for a lesser standard of fault, “[c]ontract liability is strict liability.” (Emphasis provided by Court.)

As a result of the Court’s holding, CARCO faces all but certain liability for the $133 million in costs of the cleanup from the oil spill. The Court’s decision also provides clarity to the charter industry as to the type of language used in a safe-berth clause that will create a warranty, as opposed to an obligation of due diligence. Beyond the maritime charter industry, all those that may be subject to OPA would do well to note, slightly different from the procedures of seeking contribution under CERLCA or the N.J. Spill Act, it is paramount to adhere to the initial requirement of paying the cleanup costs in the first instance, prior to seeking to recover costs from other liable parties. Parties should also note the importance of seeking relief from the Oil Spill Liability Trust Fund in a timely fashion.